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A Very Scary Christmas And An Incredibly Frightening New Year

Can you hear that? It almost sounds like a little bit of peace and quiet. This year, the holiday season has been fairly uneventful, and for that we should be very grateful. But it isn’t going to last long. 2012 is going to be a much more difficult year for the U.S. economy and the global financial system than 2011 has been. So if things are going well for you right now, enjoy this little bubble of peace and tranquility while you can. Because while things may look calm on the surface right now, the truth is that this is a very scary Christmas for financial professionals and world leaders. Most of them know how fragile the global financial system is at the moment. Most of them know that we are living in the greatest bubble of debt, leverage and financial risk that the world has ever seen. As I wrote about the other day, world leaders would not be throwing huge bailouts aroundlike crazy if everything was going to be just fine. The truth is that we are rapidly approaching another financial crisis that may end up being even worse than the horrific crash of 2008.

Despite unprecedented efforts by the European Central Bank, the yield on 10 year Italian bonds is nearly up to 7 percentagain.

Keep an eye on the yield on 10 year Italian bonds. That is going to be one of the most important financial numbers in the world in the coming months.

But Italy is not the only problem. The reality is that several European governments are teetering on the verge of default right now. Meanwhile, confidence in the European financial system has been absolutely shattered and a devastating credit crunch has set in. Nobody (other than the ECB) wants to loan money to the banks and the banks are massively cutting back on loans to businesses and consumers. This is causing the money supply to fall. The ECB is trying to hold things together with chicken wire and duct tape, but it isn’t going to work.